Herman Cain is growing as my favorite Republican candidate (only when it comes to real estate, unfortunately we do not agree on several social issues) because of the smart remarks he has made in all the Republican debates about repairing our housing mess. Too bad he’s either (a) a bad boy, one of those men who thinks with his “second brain” or (b) being unfairly targeted by a few women. Maybe he’s just a smart-ass? When I was in TV News here in Dallas, the (overweight) weatherman once told me point blank that my butt was cute when I first got to Dallas from NYC, but was now getting too big i.e. I needed to exercise more. Is that sexual harrassment?
Here’s another smart observation from Bloomberg: we can fix the housing drag on the U.S. economy — and it is a real drag — by letting the market do it’s job. Bring on the vultures! I have long wondered why banks didn’t just write down principal balances on underwater loans. According to Bloomberg/Business Week, there are 11 million underwater mortgage loans in this country and that number will likely swell. But if we just reduced the mortgage balances on all those underwater homes, well guess what: the homeowners wouldn’t be so underwater. This might ultimately stimulate the economy with some spending:
“If the market were working properly, millions of homeowners would have received debt relief a long time ago. That’s because it’s in the interest of creditors, who can gain by averting foreclosure. Consider a delinquent $100,000 loan on a house that is now worth $60,000. After taking possession of the house and selling it, a lender typically might recover less than $35,000, according to recovery rates calculated by Amherst Securities Group LP, an investment firm based in Austin, Texas.
By contrast, a 50 percent writedown of the principal balance could make the loan affordable and give the borrower some equity in the home. In that case, the lender has a performing asset worth $50,000 — a $15,000 difference”
This is not happening, says Bloomberg, because of the way banks are structured, and the way mortgages are packaged and sold off to investors. This administration has taken “extend and pretend” to “delay and pray”. Let the vultures come in and buy off assets cheaply — find a way for the loan servivcers, who are holding a lot of the troubled loans, to dispose of them. In the cycle of nature, vultures may not be the prettiest birds but they play a significant role: they clean the streets and right now, our streets are filthy. Here are four proposals Bloombery offered up to hear from a presidential candidate, smart mouth or not:
1. Encourage Fannie Mae and Freddie Mac to build on a pilot program under which the Federal Housing Administration has auctioned almost $500 million in delinquent mortgages. Remember the RTC? It worked!
2. Give legal cover to servicers who sell loans, provided the sale price exceeds the expected recovery value, from investors who might feel shortchanged.
3. Allow servicers to sell loans that have been packaged into securities, even though trusts that hold the loans prohibit this.
4. Encourage the mortgage trusts to let servicers charge a small incentivizing sales commission.
— Daily Local Real Estate Dish By Dallas Real Estate Insider — Candy Evans at CandysDirt.com